Silver unable to shine despite raised Grexit fears

Though precious metals have bounced off their session lows, they are generally continuing to struggle for form despite the increased uncertainty about Greece. Gold is now down for the fifth consecutive day and although silver has managed to buck the trend from time to time, it too is a touch lower today and also on the week. Investors are hoping that an eleventh-hour deal for Greece will be struck today, which is part of the reason why European stocks are clinging on to their gains. The dollar has also bounced back this week, though the counterintuitive moves in the EUR/USD in response to Greece headlines is holding the dollar index from staging a more profound rally. In fact, the dollar has eased back against most currencies even though the earlier US data releases were not too bad, with May’s 0.9% increase in personal spending, for example, being the biggest gain since August 2009. The 3,000 increase to 271,000 in weekly unemployment claims was bang in line with the expectations, as was the 0.1% month-over-month rise in core PCE Price Index. As mentioned, personal spending surged 0.9% in May against a rise of 0.7% expected, though the 0.5% increase in personal income was a touch weaker than expected.

But not even the slightly weaker dollar has been able to underpin gold or silver today which speaks volumes about the current sentiment towards the metals. Under normal circumstances, a weaker dollar, coupled with amplified geopolitical risks such as the current Greek situation and the very low and negative interest rates, would have favoured a move to the upside for the shiny metals. But given that the metals are not responding positively to these conditions, this further cements our bearish view. So, we expect to see further losses for both gold and silver, although that being said precious metals do look a little bit oversold in the short-term. What’s more Greece could still default and exit the euro zone; should this happen, it would undoubtedly boost the appeal of safe haven assets.

Silver has now broken below a 6.5-month old bullish trend line around $16.00. As a result, the path of least resistance is clearly to the downside now. It is possible that the metal could drop all the way to $15 or even lower before making its next move. In fact, the next major logical level of support seems to be the low that was achieved in December at $14.40. Given the symmetrical price action that we have seen of late, a bullish Gartley double bottom pattern could also come in or around that level. But for price to get there, the sellers would have to chop some wood as there are several other Fibonacci and/or horizontal supports now in sight, such as those shown on the chart. In particular, the bears would like to see a daily closing break below the 78.6% retracement level of the XA swing, at $15.80, which is currently being tested. But if this level continues to hold as support, then we wouldn’t rule out the possibility for a short term bounce, particularly as there is a small divergence in the RSI, suggesting that the selling momentum might be easing. Still, for as long as silver remains below the key resistance at $16.60, which is where we also have the 200-day moving average converge, the near term outlook would remain bearish.